Input tax credit cannot be reversed for delayed intimation of constitution change when business continuity and tax compliance are shown.

Reversal of input tax credit was unjustified where the dealer failed to intimate the change in constitution and the death of the original proprietor within the manner prescribed under the Tamil Nadu VAT Rules. Rule 5(3) and Rule 5(4)(b) require disclosure of constitution changes and recognition of the legal representative of a deceased registered dealer, but they do not authorise denial of the entire tax credit or cancellation of genuine transactions for that procedural lapse. As the business continued through the legal heir, regular returns were filed and taxes were paid, the transactions could not be disbelieved merely because intimation was delayed. The assessment orders were set aside.

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Issues: Whether reversal of input tax credit was justified merely because the dealer had not intimated the change in constitution and the death of the original proprietor in the manner contemplated by the Tamil Nadu Value Added Tax Rules, 2007.

Analysis: Rule 5(3) requires a dealer to furnish details of a change in constitution within the prescribed time and enables the Registering Authority to amend the certificate of registration. Rule 5(4)(b) similarly recognises the legal representative of a deceased registered dealer and requires filing of particulars in the prescribed form. The omission to intimate the change was treated as a procedural lapse, but the Rules do not prescribe cancellation of transactions or denial of the entire tax credit as a consequence. The dealer had continued the business as the legal heir, filed regular returns, and paid taxes, and the transactions could not be disbelieved merely on account of the delayed intimation.

Conclusion: The reversal of input tax credit was not sustainable, and the impugned assessment orders were liable to be set aside in favour of the assessee.

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